Featured Product

    ECB Article Examines Impact of Sovereign Risk on Corporate Credit Risk

    December 18, 2018

    ECB published a research bulletin article, by Johannes Breckenfelder, on whether sovereign risk can affect companies outside the financial sector. The article discusses the channels through which the spillover can occur.

    The article concludes that when a country sees its sovereign credit risk rise, companies in that country also see their credit risk increase. Companies with a large public-sector ownership, in addition to the companies that borrow heavily from banks, are most affected. This suggests that the transmission of credit risk from sovereigns to non-financial companies occurs primarily through a fiscal and financial channel.

    The results of the investigation also highlight the importance of reducing the likely spillovers of sovereign risk to corporate credit risk, for example, via the Capital Markets Union. With the ambition to further develop market-based sources of finance in Europe, the Capital Markets Union may help contain both the fiscal and the financial channels of risk transmission. This is because it would stimulate non-financial corporations to use more diversified sources of finance, for instance substituting part of the their bank lending by issuing larger amounts in more liquid corporate bond markets. The article concludes that, if companies rely less on bank lending and government support, they should be better protected from serious banking crises and sovereign distress.


    Related Link: Research Bulletin Article

    Keywords: Europe, EU, Banking, Insurance, Securities, Sovereign Risk, Credit Risk, Capital Markets Union, Market Based Finance, Research, ECB

    Related Articles
    News

    BCBS Consults on Revised Disclosures for Market Risk Framework

    BCBS launched a consultation on the revised disclosure requirements for the market risk framework for banks.

    November 14, 2019 WebPage Regulatory News
    News

    FSB Examines Implementation of Resolution Regimes in Financial Sector

    FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work.

    November 14, 2019 WebPage Regulatory News
    News

    PRA Publishes Final Policy on Maintenance of TMTP Under Solvency II

    PRA published the policy statement (PS25/19) that contains the final supervisory statement (SS6/16) on maintenance of the transitional measure on technical provisions (TMTPs) under Solvency II.

    November 14, 2019 WebPage Regulatory News
    News

    BCBS Consults on Disclosure Templates of Sovereign Exposures of Banks

    BCBS published a consultation on the voluntary disclosure templates related to sovereign exposures of banks.

    November 14, 2019 WebPage Regulatory News
    News

    IAIS Adopts ComFrame, ICS, and Holistic Framework for Systemic Risk

    IAIS adopted a comprehensive set of reforms—Common Framework (ComFrame), Insurance Capital Standard (ICS) Version 2.0, and Holistic Framework for Systemic Risk—that will enable effective cross-border supervision of insurance groups and contribute to global financial stability.

    November 14, 2019 WebPage Regulatory News
    News

    PRA Publishes Templates for Statistical Disclosures Under Solvency II

    PRA published templates for statistical disclosures, as required under Article 31(2) of the Solvency II Directive.

    November 14, 2019 WebPage Regulatory News
    News

    FASB Proposes Improvements to Derivatives and Hedging Standard

    FASB proposed an Accounting Standards Update, on codification improvements to hedge accounting under Topic 815, to clarify certain sections of the 2017 hedge accounting standard (Update 2017-12).

    November 13, 2019 WebPage Regulatory News
    News

    FASB Approves Guidance to Assist in Transition to New Reference Rates

    FASB approved an Accounting Standards Update (Topic 848) to provide temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the reference rate reform on financial reporting.

    November 13, 2019 WebPage Regulatory News
    News

    BIS and MAS Launch Innovation Hub in Singapore

    BIS and MAS launched the BIS Innovation Hub Center in Singapore.

    November 13, 2019 WebPage Regulatory News
    News

    MAS and Industry to Create Framework for Adoption of Responsible AIDA

    MAS announced that it is working with financial industry partners to create a framework for financial institutions to promote the responsible adoption of Artificial Intelligence and Data Analytics (AIDA).

    November 13, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4142